Fertile frontier

The Standard

Yoolim Lee and Netty Ismail
Monday, September 01, 2008

Kith Meng grew up in Australia as an orphan and a refugee from Cambodia's genocide. He tells of washing dishes and mowing lawns to make ends meet while living in Canberra. Being a poor outsider made him stronger, he says, and unusually driven.

Back in Cambodia since 1991, Kith Meng has built his Royal Group into an empire that owns Cambodia's biggest mobile phone company and television network and is developing a US$2 billion (HK$15.6 billion) resort and casino on a fishermen's island on Cambodia's coast.

The country's most successful businessman, he supports Prime Minister Hun Sen and benefits from his ties to the government, which granted the 99-year lease on the island for his resort.
Black-and-white photographs of Kith Meng's parents adorn one wall of his office in the capital city of Phnom Penh. They starved to death during Pol Pot's reign, when Cambodia's fertile countryside became the killing fields - two victims among the 1.7 million, or 20 percent of the population, who perished.

Kith Meng fled the terror, first to a refugee camp in Thailand and then, in 1981, to Australia. "Suffering is my mentor," he says.

Thousands of former refugees, with their own harrowing stories, have returned to Cambodia, and now investors hoping to profit in the next frontier market - a term Standard & Poor's coined for economies smaller or less developed than traditional emerging markets - are coming to the country, too.

The entrepreneurial drive and technical skills the returnees bring with them from overseas are breathing life into the economy.

Three decades after Pol Pot exterminated the country's educated classes and emptied its cities, Cambodia's gross domestic product is just US$8 billion a year.

Political and business leaders are grappling with poverty, inadequate health care, poor education and a lack of roads in this nation of 14 million.

"The trick with a frontier market is getting the timing right," says Douglas Clayton, who founded Leopard Cambodia Fund last year and is raising US$100 million to invest in real estate, banking and agribusiness. "Cambodia is really a discovery story - and it's being discovered." Cambodia grew 9.5 percent a year from 2000 to 2007, the fastest pace in Asia after China, which expanded 9.9 percent a year. Political stability under the administration of Hun Sen, has helped the Cambodian economy take off, says Bretton Sciaroni, chairman of the American Cambodian Business Council in Phnom Penh.

Hun Sen, whose Cambodian People's Party won a landslide victory in July's parliamentary elections has run the country since 1985.

An opposition leader has alleged manipulation of voter rolls, and the royalist party that shared power in the 1990s has been reduced to two seats in the legislature.

Clothing exports and tourism have buoyed the tiny economy. A 1994 law to open the country to foreign investors has encouraged some to put money in. Approved foreign direct investment rose to a record US$4.4 billion in 2006, according to the Cambodian Investment Board.

Investors can own 100 percent of a company, and they face no restrictions on taking money in and out of the country - in contrast to China or Vietnam.

From 1994 to 2007, foreign exchange reserves expanded 16-fold to US$1.6 billion. Cambodia is scheduled to open its first stock and corporate bond markets by the end of next year.

The country is now outpacing Asia's other frontier markets in Bangladesh, Laos, Mongolia and Myanmar, says Clayton. Cambodia is represented by just one company in the S&P/IFCG Extended Frontier 150 Index.

"Cambodia is Vietnam 8 to 10 years ago and Thailand 20 years ago," says Marvin Yeo, the co-founder of Phnom Penh-based Cambodia Investment & Development Fund.

He says the boom will move fast in Cambodia, because it's a smaller country than Thailand or Vietnam and has more pro-business policies.

Investors face many hurdles - not just the risk of getting in late. In a report this year, the World Bank and International Finance Corp. ranked Cambodia 145th out of 178 countries as a place to do business. The assessment weighed criteria such as how difficult it is to register property, secure credit or move goods across borders. In Transparency International's 2007 survey of perceptions about corruption, the Berlin-based watchdog group put Cambodia among the world's worst, ranking it 162nd among 180 countries.

As much as US$500 million a year is diverted from government coffers, the US Agency for International Development estimated in 2004 in its most recent report on the issue.

Hun Sen hasn't passed an anti- corruption law, despite pledging in 2003 to push it through the assembly. The leader says he wants to diversify the economy to ease reliance on textiles and tourism.

Clothing and other manufacturing account for 26 percent of the country's GDP, agriculture makes up 31 percent and tourism and other services 43 percent. The violence of Pol Pot's time, and the uncertain years that followed, have left the country to this day without the factories, roads and bridges needed to make and move basic supplies.

"Other than bricks, we have to import pretty much everything," says Jung Myung Sik, a representative of South Korea's World City, which is constructing a US$2 billion complex called Camko City near Boeung Kak Lake, a 20-minute drive from Phnom Penh's central district.

Camko City, modeled on a successful satellite city outside Seoul, will include the planned stock exchange, residential and commercial buildings, three schools and a medical center. Khaou Phallaboth, who returned to Cambodia in 1991, is among those trying to create the industry the country needs.

He spent some of his 20 years as a refugee in Paris and Brussels as a Buddhist monk and an artist.

He and his father, Khaou Chuly, have rebuilt the family construction business decimated by the Khmer Rouge. Khaou Chuly Group has set up a venture with Siam Cement, Thailand's biggest cement producer, to make 1 million tonnes of cement a year. Khaou Phallaboth plans to triple capacity to meet the country's demand of 3 million tonnes.

A third of the country's people still live on less than 50 cents a day. Eighty percent live in rural areas, and 60 percent of the population is younger than age 20.

Kith Meng owns a hotel on the banks of the Mekong River in Phnom Penh and is planning a boutique resort with India's Oberoi Group near Angkor Wat.

In his office overlooking the Royal Palace in one direction and Cambodia's first shopping mall in another, he flips through a 20-page document that outlines his island resort-casino plan, which will take more than a decade to complete.

Public Works and Transport Minister Chanthol Sun is another former refugee lured back by the chance to play a role in transforming his country.

He lost his mother and a brother when the Khmer Rouge drove the population out of the cities. The rest of the family managed to escape to a refugee camp in Thailand.

He had been sent to the US in 1973, escaping the violence with a one-way airplane ticket and US$50 in his pocket. After earning a master's degree in public administration at Harvard University in Cambridge, Massachusetts, he went to work at GE. Then came a call for help that Chanthol Sun decided he couldn't turn down.

The Cambodian government asked him to set up a Cambodia development council, and he came back in 1994 to the country of his birth.

"When I worked at GE, I worked hard for the shareholders, but who are they?" he says. "Here, my shareholders are men, women and children in the streets I see every day."

BLOOMBERG